Four-and-a-half years after the Brexit referendum, which saw only a slim majority of the British people opting to leave the EU, the two sides have finally found an agreement that will govern their future relationship.
Despite being hundreds of pages in volume, the agreement is rather light on substance. This reflects a fundamental tension that has never quite been resolved since the referendum.
On the one hand, you had those in Britain who for economic reasons advocated maintaining as close a future relationship as possible with the EU and its large single market. The cost of this outcome being continued regulatory alignment.
On the other hand, you had those for whom a decoupling was the only means to ensure Britain could take back control of its regulatory sovereignty, which was they argued, the very purpose of Brexit in the first place. The cost of this outcome being the loss of access to the single market.
Based on the deal the negotiating teams have landed on, it seems the latter camp’s logic has won out, even if this decoupling has not been pushed all the way to its most bitter end.
While it is disappointing the agreement does not contain much on the services sector, and even less on financial services, having a deal – even one lacking in substance – is of great importance for the financial industry.
First, it means the EU Commission can now factor in a more positive backdrop in the evaluation of possible market access equivalences to be granted to the UK.
Second, the agreement provides a platform on each side of the Channel from which other important footbridges in financial services can be built over time.
For example, around regulatory cooperation, perhaps through a form of structured dialogue to discuss ideas and explain proposed reforms before they are enforced in either the EU or UK. The benefit being fewer surprises and less uncertainty for everyone.
These are significant points for financial services, but many may still wonder why the EU does not just attempt to shut down competition from London altogether.
After all, Frankfurt, Paris, Luxembourg, and various other financial centres have benefited greatly from Brexit, attracting between them the activities of hundreds of global financial institutions from London to ensure they can continue serving their continental customers.
The reason for not doing so is simple. While the decision to quit the EU must have some consequences – access to the single market cannot be as easy as it was or on the same terms as it is for actual members – the EU cannot make the mistake of raising all its drawbridges and becoming a fortress.
The EU must remain open to the outside world. It has to be ready to listen, learn and cooperate beyond its borders, but also able to lead in the rest of the world and offer stability to its market.